Firms` Performance and Revenue

Firms’Performance and Revenue

Firms’Performance and Revenue

Significanceof revenue recognition

Revenue recognition is veryimportant for any business entity because revenue drives the successof most businesses. Furthermore, revenue is a means of generatingprofits and increasing equity thus, it forms a significant portionof the business success factors. Revenue recognition is one of themost common methods used to find out whether a business or companyhas met targets for revenue (Beil, 2013). In addition, revenuerecognition is important because it helps the business to identifywhether it is gaining or losing in terms of profits or losses. Thusachieving accurate acknowledgment of revenue is imperative.

Determiningwhen revenues are documented

When a business entity makesrevenue from its operations or transactions, it is important that therevenue should be recorded in the general ledger and then in theincome statement (Williams, 2005). The most important aspects to berecorded are the nature of the transaction and the amount of moneyused for the transaction. All revenue transactions are recordedbased on accrual bookkeeping, which means that accountants recordrevenues after they are earned and expenses when sustained (Bragg,2010). For instance, when a customer buys something in a store, thenthe transaction should be recorded once the customer pays to show theincrease in revenue. However, if the buyer decides to return thecommodity bought, then the store manager should also record this toshow a decrease in revenue. All business expenses and cost ofoperation should also be recorded to determine the total cost (Beil,2013). In fact, it is important that all transactions be recordedonce they have been completed to help in terms of accountingobjectives.

Productand period expense

Product expenses are thedirect expenses or cost of making a product. These direct expensesinclude direct labor, direct materials and cost of manufacturing usedto make a certain product (Bragg, 2010). On the other hand, theperiod expenses are not regarded as part of the manufacturingprocess. Therefore, period expenses cannot be associated with theproducts or cost of manufacturing the products. In fact, periodexpenses are assigned to the selling function of a business. They canonly be recorded for accounting purposes when they match withrevenues, when they expire or when they occur during the currentaccounting period (Williams, 2005).

Matchingconcept

The matching concept dictatesthat, to acquire the accurate amount of income, the expenses incurredto attain the revenues that have been recognized during a certainaccounting period, should be only recognized during the same periodand not the previous or the next period (Elliott &amp Elliott,2013). The matching concept requires that all revenues and all linkedexpenses should be recognized in the same accounting period. Forexample, selling merchandise from the merchandise inventory accountdoes not only generate revenue but also involves giving up somemerchandise to generate the revenue.&nbspIn this case, the matchingconcept entails matching the cost of the inventory sold in terms ofcost of goods against the revenue received in terms of sales (Elliott&amp Elliott, 2013).&nbsp

Appleand Samsung accounting conventions

Both Samsung and Applecompanies follow the IFRS accounting conventions. This is mainlybecause, unlike the US GAAP, IFRS permits capitalizing developmentcosts that influence the leverage ratios, profitability ratios andother efficiency ratios (McEwen, 2009). In addition, IFRS onlypermits the first-in-first-out policy to value inventory, whereas theUS GAAP allows both last-in-first-out and first-in-first-outpolicies. This causes higher profitability ratios with diminishedinventory turnover ratios for IFRS. In both companies, the IFRSconvention allows them to generate more revenue and profits ascompared to the US GAAP.

Comparisonof items from statements of Apple and Samsung

Items

Samsung

Apple

Net sales

The net sales are increasing steadily from one-quarter to the other.

Also increases from one financial quarter to the other.

Total Assets

Total assets were equivalent in the 3rd quarter of 2014 and 2nd quarter of 2015. Then increased in the 3rd quarter.

Current assets have relatively reduced from last year.

Liabilities

Liabilities diminished from the third quarter of 2014 to the second quarter of 2015 then increased to the third quarter.

Current liabilities have relatively reduced from last year.

Net income

Has slightly reduced from the second quarter to third quarter.

Increases in each quarter

Net profits

Increased from 3rd quarter 2014 to 2nd quarter 2015, and then slightly decreased in the 3rd quarter.

Increased profits from last year to this year

Comparisonof performance and changes

From the two statements ofaccounts, it has been determined that both Apple and Samsung haveadequately increased their revenues from the previous year. Theincreased revenue has translated into increased profits for bothcompanies, which means that they have enhanced performance. Theexpenses incurred by both companies have also increased slightlythough this has a minimal effect on the profits because the companieshave high sales thus, both companies’ performance have increased.

References

Beil, F. (2013).&nbspRevenuerecognition principles and practices.New York, N.Y.] (222 East 46th Street, New York, NY 10017): BusinessExpert Press.

Bragg, S. (2010).&nbspWileyrevenue recognition rules and scenarios&nbsp(2nded.). Hoboken, N.J.: Wiley.

Elliott, B., &amp Elliott, J.(2013).&nbspFinancialaccounting and reporting&nbsp(16.thed.). Harlow: Pearson.

McEwen, R.(2009).&nbspTransparencyin financial reporting a concise comparison of IFRS and US GAAP.Petersfield, Hampshire, Great Britain: Harriman House.

Williams, P. (2005).&nbspRevenuerecognition in today`s business climate.Lewisville, Tex.: AICPA.